Having a well thought through retirement plan is a sure way for your clients to avoid outliving their savings, particularly now when Canadians are living longer than ever. However, what happens when market volatility means that your clients’ plan is no longer realistic?
The COVID-19 crisis has thrown many Canadians into this situation, leaving them with a retirement plan based on old assumptions – perhaps the value of their portfolio is lower than before with projected returns having gone down as well. And with interest rates near zero, your clients’ purchasing power could drop significantly should inflation start to go up. What’s more, since some of the financial support programs, such as mortgage deferrals, came to an end at the end of 2020, your retired clients may be feeling the pinch more than ever.
Faced with this, it’s important for your clients to reassess their retirement plan to work out how much money they have vs. how much they expect to spend – and then adjust accordingly. This applies in particular to clients who are already retired, as well as those 5-10 years from retirement, who don’t have as much time to ride out the current economic climate.
Reassessing your clients’ retirement plan
To give your clients as realistic a picture as possible of their retirement finances, start by setting out the following:
- The age they plan to retire if they’re not already retired
- The value of their assets
- How much they expect to spend each year in current dollars
- Their life expectancy (this should be until at least age 90)
- A base inflation rate of 2%
- A base rate of return (you can use 4% to err on the side of caution)
- The tax they can expect to pay based on current tax law and projected income
Once you’ve crunched all these numbers, your clients will have a clear and up-to-date picture of their retirement income and what shortfalls they might be facing. You can now help them look into how to make up for those shortfalls, or if that’s not possible, rein in their spending.
If your clients are paying off a mortgage, they may have been enjoying the financial reprieve brought about by the mortgage deferral programs offered by many banks in 2020. And although these programs have now come to an end, your clients’ mortgage provider may be open to refinancing their mortgage and offering lower monthly payments by extending the amortization.
Suggest a home equity line of credit
A HELOC can be a good way for your clients to bolster their retirement income when needed, plus it’s one of the lending options with among the lowest interest rates. However, bear in mind that many Canadians – especially older Canadians who may not have a fixed income – are seeing their HELOC applications denied as lenders become more risk averse in response to the COVID crisis.
Consider a Reverse Mortgage
The CHIP Reverse Mortgage is a long-term solution for clients who are experiencing a shortfall in their retirement finances. The Reverse Mortgage allows clients to access up to 55% of the value of their home in tax-free cash. And because they don’t have to pay what they owe until they leave their home, there are no monthly repayments, freeing up even more cash so they can live the retirement they’ve always planned. What your clients spend their money on is up to them, but popular options include consolidating debt, renovating their home, or even helping out a loved one with the down payment on a house.
Have your clients’ finances suffered due to the COVID-19 pandemic? And if so, how have you helped them make up for the shortfall? Let us know in the comments!
- Posted by Samrat
- On January 13, 2021
- 0 Comments
- 4 likes (You have already liked it.)